Google made nearly $120 billion in revenue last quarter. Somehow, that wasn’t enough to cover what the company is pouring into AI.
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Alphabet, Google’s parent company, announced on Wednesday, July 22, that it recorded free cash flow of $5.9 billion in the second quarter of 2026, marking the first time that this figure has fallen below zero since the company went public. Google made $39.1 billion in operating income, but spent $44.9 billion on capital projects, with most of the money going toward servers, data centers, and networking equipment needed to support its AI products.
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To be clear, Google still makes a lot of money. In its Q2 2026 earnings report, the company disclosed $119.8 billion in revenue for the quarter, a 24 percent increase from the same period last year. Operating income reached $40.8 billion, while its net profit rose to a record $112.1 billion.
There is a significant catch to that record advantage, however. Most of it came from Alphabet’s investments rather than its core businesses. The company reported about $98 billion in other, mostly unrealized gains on its equity investment portfolio. Those gains reflect assets that increased in value but were not sold for cash.
Free cash flow provides a look at the actual cash that Google had left over after covering its operating expenses and investments in assets such as equipment and supplies. The company typically generates billions of dollars in free cash flow each quarter. However, this time, its rapidly growing infrastructure costs have consumed more money than its businesses have produced.
And Google isn’t planning to slow down.
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And on July 22, the company increased its expected spending in 2026 to between $195 billion and $205 billion. Google previously told investors during its first-quarter earnings report on April 29 that it expects to spend between $180 billion and $190 billion this year. The revised forecast will more than double the estimated $91 billion in spending by 2025.
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The bill is expected to continue to grow next year. During Alphabet’s call on Wednesday, Chief Financial Officer Anat Ashkenazi told investors that spending will increase “significantly” again in 2027.
“We expect free cash flow to remain under pressure driven by our investments in technology infrastructure, enabling us to take advantage of AI and continue to return attractive returns,” Ashkenazi said.
So, where does all that money go?
According to Ashkenazi, about 60 percent of Google’s technical infrastructure costs during the quarter went to servers. The remaining 40 percent went to data centers and communications equipment.
Google also said it needs that extra capacity to meet demand from external cloud customers and support its products, including Search, Gemini, and Google Workspace. There are already signs that some of the spending is paying off: Google reported that cloud revenue reached $24.8 billion during the quarter, an 82 percent increase from a year ago, while operating income tripled to $8.8 billion.
Google’s other big businesses have continued to grow, too. The company also reported that Search advertising generated $63.3 billion, YouTube advertising brought in $11.1 billion, and revenue from subscriptions, platforms, and devices reached $12.9 billion. Google said demand for AI subscriptions has helped grow its Google One business.
It’s not the only company writing big checks for AI. Google, Amazon, Microsoft, and Meta are collectively expected to invest more than $700 billion this year, mostly in data centers, chips, and electricity needed to build and run their AI systems.
Investors, however, did not seem convinced by Google’s growth. Shares of the cryptocurrency fell nearly 7 percent on Thursday, July 23, a day after the company raised its spending forecast and warned that free cash flow would remain under pressure.
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Google still has a big financial constraint, but since the company has already warned that infrastructure spending will increase significantly again in 2027, this may not be the last quarter where Google’s big AI bill exceeds revenue.
